'Fiscal cliff' worth $6b in local losses

Local recession also could ensue, says local think tank

Senate Minority Leader Mitch McConnell of Ky., gestures during a news conference on Capitol Hill in Washington in July, following a Republican political strategy session over tax and spending policy and the chances of a going over a "fiscal cliff." (AP Photo/J. Scott Applewhite)
— AP

Senate Minority Leader Mitch McConnell of Ky., gestures during a news conference on Capitol Hill in Washington in July, following a Republican political strategy session over tax and spending policy and the chances of a going over a "fiscal cliff." (AP Photo/J. Scott Applewhite)
/ AP

Fiscal cliff and commercial real estate

CoStar Group, which monitors the commercial real estate industry, asked 800 readers on its website about the fiscal cliff. Here are the results.

San Diego County, along with the rest of the nation, could fall back into recession next year, if scheduled federal tax increases and spending cuts take place.

The Congressional Budget Office said Wednesday the Gross Domestic Product could go negative in the first half of the year and recover only slightly the second half. (See the reportonline.)

And according to the local National University Systems' Institute for Public Policy, San Diego could see nearly $6 billion in cuts and higher taxes, virtually wiping out next year's projected increase in gross regional product.

"If I were a betting guy, I'd put the odds at somewhere between 1 in 5 and 1 in 10 that we'll be going over the fiscal cliff," said Erik Bruvold, president of the nonprofit institute, who authored the policy brief due for publication Thursday. (Fiscal cliff is the term used to describe the conundrum that the U.S. government will face at the end of 2012 if it doesn't make a decision about the tax increases and spending cuts.)

But he also said he wasn't putting the chances at zero because of continued polarized politics in Washington.

And as uncertainty continues, consumers and businesses likely would curtail holiday spending, travel plans and investments, putting a brake on economic growth.

"I'm sorry to sound like doom and gloom,"Bruvold said, "but if this isn't solved and relatively soon, you would expect in the fall and winter there will be increasingly negative commentary about what the fiscal cliff will do to the economy and that would have a negative impact on consumer confidence."

If the economy stalls, employment slows as well. Bruvold said San Diego could see nearly the entire 36,000 job gain of the past 12 months wiped out by a loss of perhaps 30,000 jobs next year if the worst case scenario comes to pass.

The predictions are based on fiscal changes written into federal statutes:

The 2001 and 2003 tax cuts under former President George W. Bush are due to expire Dec. 31. The San Diego share: $2.8 billion to $3.5 billion. The region currently pays about $27.3 billion in federal taxes.

Reduced domestic spending: As part of last year's debt ceiling increase agreement, Congress ordered planned spending be suspended or sequestered. San Diego's $31.5 billion could be reduced by $481 million to $760 million.

Defense cuts: Across-the-board cuts affect San Diego more than other metro areas and could mean a reduction of $1.1 billion to $1.7 billion from the present $23.7 billion.

In addition, another billion or more in higher income taxes would result from the expiration of the 2 percent payroll tax cuts of 2011 and 2012. Many economists and policymakers do not expect the cuts to continue.

Two other economists quibbled with Bruvold's findings, while agreeing that the federal tax and spending changes could hurt the economy the longer they go on.

Christopher Thornberg at Beacon Economics preferred the term "fiscal hill" because the impact would not happen overnight and might be short-lived if Congress and the president, either a reelected Barack Obama or replacement Mitt Romney, work out a compromise in time.

"If it lasts until May, that's obvious," he said of an imminent recession. "You don't need a think tank to put that (prediction) out."

And he said San Diego, despite its growing economy, could not weather the storm.

"San Diego would be pushed into recession, no matter what its economy is," he said. "Your most important client is the rest of the U.S. As the rest of the U.S. goes into recession, so does San Diego."